With 18 companies in its portfolio, advantEdge is looking to back up to eight companies more this year, an executive with the early-stage VC fund that has been co-investing with other leading VC firms like Sequoia Capital, Lightspeed Venture Partners, 500 startups and IDG Ventures, said in an interaction. Kunal Khattar, founding partner of advantEdge, discussed the firm’s strategy and investment plans for 2017, even as he explained its newly launched incubation programme, during an interaction with this portal. He is also the co-founder of multi-brand auto sales and service network Carnation Auto India Pvt Ltd, a company which was started by his father Jagdish Khattar, former chief of Maruti Suzuki. It is backed by investors like PremjiInvest, Gaja Capital and IFCI Venture Capital. Edited Excerpts.
How was 2016 for advantEdge?
2016 has been a great year for us. With 18 upcoming companies like Shuttl, Rapido, ScoopWhoop, TrulyMadly and Tripoto in our portfolio, two exits and multiple ongoing conversations with entrepreneurs, we see a huge opportunity of investing in various other companies in 2017.
What is the size of the fund? How much have you utilized from it?
We have an open-ended fund since our LPs are co-invest along with the fund on many of the transactions. As on date, we have deployed around 50 per cent of what is the initial target, but again we have the ability to expand on the same if we see an attractive investment opportunity.
What is your investment strategy?
advantEdge is a leading early stage venture capital fund, focused on finding the best ideas and execution in emerging tech sectors within India that have immense potential to extend into a cross-border platform. advantEdge backs early-stage startups with a strong founding team, and a compelling value proposition. We look for businesses with strong unit economics, a clear path to monetization and a scalable customer acquisition model. The fund invests between $100K to $1 million per transaction in angel, seed and Series-A investments.
What are the new sectors you are planning to focus on?
Due to our previous work experience in the technology and automobile sector, we were more inclined to invest in upcoming startups from that industry. However, with time we have broadened our investment portfolio and are now looking at various startups in the consumer food and beverage sector, IoT, etc. We are keen on exploring opportunities in the rural areas, vernacular plays etc.
How do you see the overall environment for VC deals in India?
For the first time in five years, VC investments saw a drop of around 30 per cent in 2016. According to Venture Intelligence data, in 2016, VC firms have invested $1,441 million across 405 deals as compared to $2,018 million across 511 deals in 2015.
On the plus side, we saw a dramatic improvement in the quality of the entrepreneurs who got funded in 2016. Going forward, we think the investors are looking to make a comeback, they have the funds and are on the lookout for the right startups.
Few months ago, advantEdge made exits from portfolio firms EBW and MassBlurb – are you looking for more exits?
Being an early stage VC fund, we are focused on building our portfolio at this time. We have been investing only for 18 months, so we still have a long runway to start optimizing on exits. On the exit front, we don’t have anything at this point. But we remain opportunistic and if there are any inbound interests we evaluate every opportunity and take a call based on what’s best for the portfolio company.
What are the new investments in pipeline? Is there a number of investments you have decided for the year?
We do have a few investments in the pipeline that we will only be able to reveal after all the formalities are fulfilled. Our next investments will be focused on smart learning and F&B industry.
For the year 2017, we are looking at investing in 5-8 more startups making our total number of investments to 26. But this is going to be the year where most of our effort and focus will be on supporting our existing portfolio companies to raise growth capital. Eight of them have already gone to raise subsequent capital and we are confident that the same momentum will continue.
How do you decide to make an investment in a company?
advantEdge Partners provides two core unique, unparalleled unfair advantages for its entrepreneurs. One, partnership connections in India and worldwide that allows their investments to quickly gain Indian market validation and accelerated a path to revenue. Two, the fund investors built and powered household-name Indian enterprises with current $10+ billion combined revenue that over the last three decades have deeply embedded into all facets of the Indian markets, both on small business, large enterprise and consumer scale. Unparalleled expertise of general partners as serial venture-backed entrepreneurs with multiple successful financings, operational execution excellence and highly-accretive venture-backed exits in the United States.We look for businesses with strong unit economics, a clear path to monetization and a scalable customer acquisition model.
You have invested in test preparation startup OnlineTyari, is they raise more funding, would you be taking part in the next round also? What do you think of this sector?
OnlineTyari has just raised their Series A round which was led by Dell Foundation. We participated in the round also. I don’t think they are looking for the next round for some time, but would definitely consider participation. We believe in maintaining our shareholding and continue to participate in subsequent rounds for all our portfolio companies.
How do you view 2017 as a VC investor?
2017 looks much more promising. Overall, we expect the quality of deal flow to improve significantly in 2017 as investor confidence goes back up.
Two of the biggest disruptions that have happened in the recent past, which are going to be instrumental in the tech startup environment going forward are – the launch of Reliance Jio and demonetization. These factors will counter the two biggest challenges technology startups face in India. One is the low penetration of affordable and reliable high-speed internet access and second is the inability of companies to monetize their installed base of customers. Even with the explosive growth of smartphones, access to high-speed internet has remained muted or patchy.
advantEdge has also launched a six-month incubation programme for pre-funding companies. How would you be picking up startups for this, please elaborate.
We look for passionate and committed teams, innovative ideas and compelling hypothesis. However, the single most important factor for us is the founding team. Startups can apply for the program at any stage of their lifecycle, but we typically prefer pre-funded companies with at least a POC in place.
advantEdge provides a 360 degree support for startups from our in-house team, an exceptional mentor network, investor community, corporate and industry access, state of the art infrastructure and extensive support services. We also invest limited amounts of capital upto Rs 15 lakhs into startups selected to help you get started.
advantEdge underwrites 20% of the follow-on fund raise by startups post graduation, subject to certain conditions. In addition, our team with buy-side and sell-side fundraising experience, will support startups and can help you connect with a network of super angels, seed funds, crowdfunding platforms and tier-I venture capital funds. We take equity between 5 per cent and 8 per cent in startups joining our program and
expect the startup teams to be passionate, determined and flexible.